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FEDERAL RESERVE BANK OF CHICAGO

ISSN 0002 - 1512
Number 1542

,
AeMorial
hrgireviteetto4
Waite 1■
iturat Economics January 9,19717
Division of AgrIcu

CORN AND SOYBEAN PRICES are recovering from
the unexpectedly large declines in early December.

marketing year, the USDA is projecting exports will register a 7 percent increase while domestic utilization—

Cash prices for soybeans at Chicago have risen to $8 a
bushel, up a dollar from the mid-December low but still

despite a large increase in utilization for food and indus-

a dollar below the November peak. Chicago cash prices
for corn have risen to $3.65 per bushel despite the recent
"call" of all CCC loans on corn in the three-year reserve
program. The current corn price is about 25 cents a
bushel higher than the mid-December low and about 10
cents higher than the November peak.
The call of the corn reserve was announced in late
December and will become effective January 16 when all

•

reserve participants will receive formal notification.
After that, farmers will have 90 days to repay the CCC
loans on their reserve corn. Farmers who fail to repay the
reserve loans within 90 days will forfeit ownership of
their corn to the CCC.

The call does not force participants to sell their
reserve corn. However, high interest rates will likely
discourage the practice of refinancing with commercial
lenders in order to repay the CCC loans. Most of the
roughly 700 million bushels of corn now in the reserve
was enrolled at a loan rate of $2.00 or $2.10 per bushel.
Proceeds from the sale of two bushels of this corn, at
current prices, will be more than sufficient to repay the
CCC loan on three bushels of reserve corn. Legislation
last month that raised the loan rate on 1980 corn entering
the reserve to $2.40 a bushel and waived the first-year
interest charge, however, apparently triggered considerable enrollment of 1980 corn at the higher rate. This
trend may continue until January 16 when further enrollment is precluded by the formal notification of the call.
Corn and soybean prices this winter will be influenced mostly by the rate of disappearance—both domestically and through exports—and by crop developments

•

in the Southern Hemisphere. Prices normally rise seasonally during the winter and spring. Even so, pricing
trends this year will still reflect the way emerging devel-

opments stack up with the anticipated sharp drawdown
in carryover stocks by this fall. For the 1980/81 corn

trial purposes—will likely decline about 2 percent. In
light of last fall's small harvest, the USDA is projecting
the 1980/81 marketing year will register a 6 percent
decline in soybean exports and a 7 percent decline in
soybean crushings.
So far in the 1980/81 marketing years for corn and
soybeans, export trends have been mixed. Corn exports
for the first three months of the 1980/81 marketing year
are up 7 percent from the year-ago pace—on target with
the USDA's projected increase for the entire marketing
year. But soybean export inspections for the first four
months of the 1980/81 soybean marketing year are down
a fifth from the same period a year earlier—a much
bigger decline than indicated in current projections for
the entire marketing year. If the projection for the entire
marketing year is to be achieved, soybean exports must
exceed year-ago levels in the months ahead. Corn and
wheat are also expected to maintain a record export
pace. For all three commodities to achieve record shipments this winter may be difficult unless temperatures
are mild enough to permit relatively unobstructed flows
through the lower Mississippi River system. The low
water levels presently reported for the lower Mississippi
River and the Mexican embargo on U.S. rail cars entering that country raise additional concerns about the
overall export pace this winter.
Evidence of recent utilization of corn domestically
will remain sketchy until the USDA's Grain Stocks report
is released later this month. Crushing reports, however,
indicate that domestic utilization of soybeans through
late December has exceeded the rate needed to meet
the USDA's projected decline of 7 percent for the entire
marketing year. However, mill stocks of soybean meal
are large, and crushing margins have been sharply
lowered by the recent decline in prices of oil and meal.
Southern Hemisphere crop developments will mostly influence soybean prices. Initial reports suggest the

2

soybean crops in Brazil and Argentina were planted
under fairly good conditions and that the coming harvest in early spring may exceed the large crop of last year.
However, it is still early in the Southern Hemisphere
growing season and these prospects could change significantly in another month or two.
On balance chances of significant increases from
current corn and soybean prices may be limited this
winter. The call of the corn reserve along with earlier
large forward sales for delivery in early 1981 will likely
provide adequate cash market supplies for the near
term. Although the December decline in prices may

HOG PRODUCTION remained below year-earlier
levels this fall, but did not decline as much as expected.
According to the USDA's latest Hogs and Pigs report, the
September-November pig crop was down only 1 percent from a year ago. The cutback was considerably less
than anticipated by industry analysts and held the reduction in hog inventories to only 4 percent below a year
ago. Moreover, the inventory of hogs held for breeding
was somewhat larger than expected, but still down 5
percent from a year ago. The smaller June-November
pig crop and indications that the December-May farrowings will be below last year's level portend a decline of
around 5 percent in pork production for the year. Hog
prices, in turn, will likely average considerably higher
this year, particularly in the first half.
The less-than-expected cutback in the SeptemberNovember pig crop reflected more pigs per litter and
more farrowings than were indicated by producers'
intentions last September. The average number of pigs
per litter was 7.3, up from 7.1 the same period a year ago.
Farrowings during September-November were only 3
percent below a year ago instead of the 10 percent
indicated by producers in September. Nevertheless, it
marked the third consecutive quarter of a cutback in
farrowings, a trend that is expected to continue through
spring.
Hog inventories are still at high levels, despite the
downturn in production. While the September-November pig crop showed only a slight decline, the JuneAugust pig crop was down 10 percent, contributing
heavily toward the reduction in current inventory numbers. The December 1 inventory of market hogs—at 55.4
million head—was 4 percent smaller than last year but 9
percent higher than in 1978. Market hogs weighing 180
pounds or more numbered 2 percent above a year ago.
Hogs weighing 60 to 119 pounds were 10 percent fewer

have triggered increased foreign purchases, the pace in
corn and soybean exports this winter may encounter
problems in exceeding the record levels of a year ago.
On a more positive note, the recent slide in prices may
also have strengthened domestic demand for livestock
feeding. The larger-than-expected inventory of hogs
also supports prospects for domestic utilization. Any
efforts by the new Administration to relax or terminate
the embargo on Soviet shipments might add further
strength to grain and oilseed prices.

Gary L. Benjamin

in number than last year. The inventory of market pigs
weighing less than 60 pounds was down 3 percent as was
the inventory of 120-179 pound hogs.
The inventory of hogs held for breeding purposes
was down 5 percent from the record level of a year ago.
The smaller breeding inventory corresponds with producers' intentions to cut back farrowings in the months
ahead. For the December-May period, producers' intentions point to a 6 percent reduction in sow farrowings.
This includes a slight improvement in intentions for the
December-February quarter over that given in September. Farrowings during the December-February period
are expected to be 6 percent below last year.
In District states trends in hog production are
mixed. The June-November pig crop was up 1 percent in
Iowa—which accounts for about a fifth of hog production nationwide—but down in the other four District
states. The biggest cutback was in Michigan where the
June-November pig crop was 19 percent lower than a
year ago. The December 1 inventories and producers'
farrowing intentions correspond with these production
patterns. Iowa's inventory of both market and breeding
hogs remains near year-ago levels, whereas inventories
in Michigan are down one-fourth or more. Only two of
the District states—Illinois and Indiana—were similar in
farrowing intentions to the U.S. estimate. Iowa producers suggested that a 2 percent decline in farrowings
is likely for December-May, but Michigan producers
anticipate a one-fourth decline.
Hog slaughter was down during the second half of
1980 after setting a record in the first half. Preliminary
estimates place second-half slaughter about 1 percent
below last year with all of the decline coming in the last
quarter. Despite the decline pork supplies have been
high with respect to most earlier years.

3

1980 farm commodity prices in perspective
index, 1967=00
265 —

All commodities

Cattle

dollars per cwt.

Hogs
dollar per cwt.
55 —
‘∎ 1979
1980

255

45r-

••

b,
i

%,"

245

•
•

_
5

35

,„.•

1980
1979
prices received
by farmers

225 —

choice steers
at Omaha

T

T

J M M J SNAvg.

dollars per bu.
3.50"—*

J M

Corn
dollars per bu.
8.50

prices received
by farmers

M J S

N Avg.

J

7.501—

M

M

Soybeans
dollars per cwt.
14.50—

prices received
by farmers

1980

3.00

barrows and gilts
at 7 markets

25 —

J

S

Milk

13.50

■
•■1980

2.50

..e

6.5

12.50

"..

•

1980
1979

,' 1979

5.5
11.50

T a
J

■

MEM

•

2.00-

Avg.

prices received
by farmers

1979
.„•••••

N

M M J S N Avg.

T
J M

M J S N Avg.

J

MM

JS

N

l
Avg.

• Annual average, 1979
■
Annual average, 1980

In 1981 hog slaughter will be down but not as much
as earlier anticipated. Based on the June-November pig
crop, hog slaughter in the first half may be down about
6 percent from a year ago. Most earlier projections had
indicated a decline of a tenth. For the second half, indications of the number of sows kept for breeding and
the farrowing intentions for the December-May period
point to a 4 percent to 6 percent decline in hog slaughter, assuming the pigs saved per litter is unchanged.
However, second-half estimates are somewhat tentative
in light of the profit picture facing pork producers.
Further cutbacks in 1981 could occur as producers
respond to lagging prices and increasing production
costs—especially feed costs.
Hog prices have dipped in recent weeks and now
average $43 to $45 per hundredweight. A year ago prices
were a fourth lower. At current prices farrow-to-finish
producers are selling below breakeven, according to
Iowa State University budgets. However, some improvement in prices early this year is likely as the year-to-year

lag in slaughter widens. Prices in the first half of the year
may average in the upper $40s.
Total meat supplies may be down due to the decline
in pork production. Beef supplies are expected to hold
near year-ago levels, and poultry production may increase
slightly. Total red meat and poultry supplies may be
nominally below the 1980 estimate of 51.7 million
pounds.
Consumer demand for meats could be tempered by
continued sluggishness in the economy. Also, higher
consumption of pork may be discouraged by the increase
in pork prices relative to beef prices. Preliminary estimates for December indicate that retail pork prices are
up 15 percent from a year ago, sharply above the 4
percent rise in beef prices. The pork/beef retail price
ratio is around .65, compared to .58 a year ago and .53 in
late spring of 1980.
Jeffrey Miller

4

Selected agricultural economic developments
Percent change from
Prior period

Year ago

223
277
134
255

- 0.5
+ 0.2
- 3.3
+ 0.4

+11
+14
+1
- 1

November
November

19,119
4,007

- 1.5
- 0.2

+9
+10

mil. dol.
mil. dol.

November
November

2,333
455

- 2.6
- 2.0

- 7
- 4

mil. dol.
mil. dol.

November
November

35,554
8,346

+ 0.9
+ 0.9

+22
+26

mil. dol.
mil. dol.

November
November

435
95

-13.3
-16.5

-18
-18

percent
percent
percent
percent
percent

3rd Quarter
3rd Quarter
12/25-12/31
12/25-12/31
12/25-12/31

14.12
13.59
14.26
18.45
11.91

- 9.2
- 8.3
- 2.8
+ 4.1
- 4.3

+26
+22
+19
+31
+17

Agricultural trade
Agricultural exports
Agricultural imports

mil. dol.
mil. dol.

November
November

3,796
1,537

+ 3.4
+ 8.0

0
+1

Farm machinery sales"
Farm tractors
Combines
Balers

units
units
units

November
November
November

8,720
2,472
526

-43.6
-57.8
-53.8

+57
+48
+96

Subject
Farm finance
Total deposits at agricultural bankst
Time deposits
Demand deposits
Total loans at agricultural bankst
Production credit associations
Loans outstanding
United States
Seventh District states
Loans made
United States
Seventh District states
Federal land banks
Loans outstanding
United States
Seventh District states
New money loaned
United States
Seventh Distict states
Interest rates
Feeder cattle loanstt
Farm real estate loanstt
Three-month Treasury bills
Federal funds rate
Government bonds (long-term)

Unit

Latest period

1972-73=100
1972-73=100
1972-73=100
1972-73=100

December
December
December
December

mil. dol.
mil. dol.

Value

•

tMember banks in Seventh District having a large proportion of agricultural loans in towns of less than 15,000 population.
ttAverage of rates reported by District agricultural banks at beginning and end of quarter.
PPreliminary.

FEDERAL RESERVE RANI(
OF CHICAGO
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P. 0. Box 834
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•
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